In a troubling glimpse into its procedures, the Internal Revenue Service issued an internal memorandum to examiners, estate and gift attorneys, and appellate officers regarding “Procedures for Implementing the Penalty for the Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals Under IRC Section 6695A.” The memo—written in August 2009—only recently came to light after requests under Freedom of Information Act, according to Jay Fishman, who moderated a tax update at the 2009 ASA Advanced BV Conference in Boston this week. Among its provisions, the memo permits IRS agents and examiners—even those lacking BV accreditation or appraisal experience—to issue a penalty citation without consulting the appraiser or Field Specialist Engineer:
“I’m very troubled by this,” said Howard Lewis, former IRS Engineering Program Manager and ASA panelist. An appraiser would only become aware of the pending assessment after receiving a “Penalty Appointment Information Letter” (“4477 Letter”). “It’s a dangerous situation,” he added, that may lack due process safeguards (an attendee in the session noted that, whether or not a penalty is assessed, an appraiser who receives a notice will never have a clean record again when asked “have you ever been cited by the IRS”). Penalties do not apply if it is "more likely than not" that the appraisal value is correct—but even the IRS admits that “the statute does not define ‘more likely than not’” and “forthcoming regulations will provide further guidance on this standard.”If the claimed value of the property on the return or claim for refund, which is based on an appraisal, results in a substantial valuation misstatement, substantial estate or gift tax valuation understatement, or gross valuation misstatement with respect to such property, the examiner should open an IRC section 6695A penalty case to determine if sanctions against the appraiser are warranted.
The ASA has requested an emergency meeting with the IRS to discuss the ramifications of the memo, said Fishman, also a member of the IRS Standing Advisory Council. “But that doesn’t guarantee they’ll listen.” Until further developments, Lewis encouraged all BV appraisers to read the memo. And should they ever receive a 4477 Letter, “do not go alone.”